Opinion: Oil and gas wells cheaper to give away in Alberta than to operate

The times in Alberta are tough. At Perpetual Energy we are doing everything we can to remain a productive and viable contributor to Alberta’s economy. We know many people in this province rely on us for a living and this point does not escape us.

The times in Alberta are tough. At Perpetual Energy we are doing everything we can to remain a productive and viable contributor to Alberta’s economy. We know many people in this province rely on us for a living and this point does not escape us.

So why would we offer to give away our wells to municipalities? Simple – we have come to a point where we can’t afford the property taxes any longer. These properties are in a cash loss situation and unsustainable for us to continue operating.

But if the county owned the assets, production could continue, royalties and lease rentals could be paid, jobs and the ripple of economic activity could be maintained and whatever cash flow there was left could mitigate the lost property taxes to some degree too.

Of course, municipalities have the need for revenue and we are prepared to pay our fair share of taxes. The fundamental problem is the assessment by municipalities of oil and gas properties vastly overstates the value of the assets, resulting in colossal taxes. The regulated guidelines used by municipalities and the Alberta government need to be revised to reflect an even-handed assessment process for these mature shallow gas assets.

Annual property taxes are intended to be a small percentage of the assessed value of physical assets. For homeowners, this means they pay tax on the assessed value of their property which is calculated based on current market conditions. If the price of homes sold go up or down in the community, the assessed value by municipalities reflects these variances.

The marketplace does not stop oil and gas properties from becoming less valuable over time. Production creates a natural decline of product, resulting in properties becoming less valuable. The regulated value assessment process does not adequately factor this reality. The result is what we face today, taxes that are unaffordable and impact our ability to continue to produce these wells. Unfortunately this makes us all losers: employees, local businesses, land owners, residents and, of course, our company too.

We have suggested to municipalities that they use the property values determined by the energy regulator, which better reflects the current situation. We have displayed, that using the Alberta Regulators’ value, a property tax is calculated that becomes more affordable for our operations.

Our best case scenario for mutual benefits is to donate the wells to the municipalities. This will generate municipal revenue now and for the future. We recognized that municipalities don’t have the expertise to run a gas operation, so we offered to provide a very affordable contract operations agreement.

This issue is not something that has just surfaced. Frankly, the industry has been attempting to find solutions that create a fair municipal tax situation for years. The Alberta energy sector pays over $1.0 billion towards property taxes annually. The harsh impact of commodity prices has made the need to find a fair tax solution even greater than ever. If we could reach an agreement on assessment procedures, the province, local communities and our company’s employees and shareholders would benefit.

We invite all parties to unite and seek creative approaches. For example, creating a formula for assessed value that adequately reflects depreciation through production and considers current commodity prices. This would allow for all parties to work together and share fiscal outcomes in good and bad times.

Do we want to give away our wells? Not really! But, we see this as the most viable option to maximize value of these natural gas resources for the people of Alberta and the residents of the county.

We fully recognize there are two sides to every debate but we think everyone can agree on one fact –these are tough economic times for all Albertans. Working together to understand the facts and find creative solutions will result in the best outcomes for all of our futures.

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